One solution you could try is a progrma called "virtual audio cables" (VAC) which you can find here .
The first of probably many problems you will probably encounter if you try the patch from out to in as you described, is that if you then use some software to try to record what arrives at the line in, most recording software will try to also playback or "monitor" what you are recording, so you can hear that it's working ok, at the right volume, etc. Then you will have an error or a crash because whatever you are using to play audio to the output will have "possession" of the audio output driver. Most regular soundcards and associated software only have what is called "single client" drivers which means that only one program can control, access or send/recieve data to and from them.
There are high-end (meaning expensive!) pro soundcards that have "multi-client" drivers but I doubt you using one.
If you don't want to use VAC or you don't like it for some reason, you can get lots of multi-tracking software, free, shareware and commercial that uses various ways to allow you to mix existing audio files with other files, or mix files played from the computers with audio coming in via the line-in. Personally I like Steinberg Wavelab 4 but it's expensive to buy! I think Cool-Edit Pro has multi-tracking facility, or you could try Acid, Vegas, Cubase VST, or whatever. If you want to try a good quality program without having to spend lots, try N-Track Studio from fasoft.
It may take a bit of learning to get the hang of all this, if you want any help try replying here and if I remember to check back I'll do my best to help.